The easing of COVID-19 restrictions and evolving business models have helped the restaurant industry rebound over the past eighteen months. However, deepening supply chain disruptions and surging inflation could mar the industry’s growth in the near term.
However, while the industry continues to be challenged by supply chain issues, labor shortages, soaring food prices, increasing consumer spending and digital innovations in food deliveries and other dining facilities are catalyzing the industry’s growth. The fast-casual restaurant market is expected to grow at a 10.6% CAGR from 2021 to 2027.
Given this backdrop, we think it could be wise to bet on fundamentally sound restaurant stocks Bloomin' Brands, Inc. (BLMN), Arcos Dorados Holdings Inc. (ARCO), Ruth's Hospitality Group, Inc. (RUTH), Biglari Holdings Inc. (BH) and Potbelly Corporation (PBPB).
Bloomin' Brands, Inc. (BLMN)
BLMN in Tampa, Fla., owns and operates casual, upscale casual, and fine dining restaurants internationally. It operates through two U.S. and international segments. The company’s restaurant portfolio has four concepts, including Outback Steakhouse, Carrabba's Italian Grill, Bonefish Grill, and Fleming's Prime Steakhouse & Wine Bar.
BLMN’s total revenue increased 28.9% year-over-year to $1.05 billion for the fourth quarter, ending Dec. 27, 2021. Its income from operations amounted to $78.49 million compared to a $7.24 million loss from operations in the prior-year quarter, while its net income was $60.70 million compared to a $14.21 million net loss in the year-ago quarter. The company’s EPS amounted to $0.59, versus a $0.16 loss per share in the previous-year quarter.
Analysts expect BLMN's revenue to increase 14% year-over-year to $1.13 billion in the first quarter, ending March 31, 2022. The $0.73 consensus EPS estimate for the first quarter, ending March 31, 2022, represents a 2.1% improvement year-over-year. Furthermore, it has an impressive earnings surprise history; it surpassed the consensus EPS estimates in each of the trailing four quarters. The stock has gained 6.6% in price year-to-date and 4.2% over the past three months.
BLMN's POWR Ratings reflect this promising outlook. The company has an overall B rating, which translates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
The stock also has an A grade for Value and a B for Quality. Within the B-rated Restaurants industry, it is ranked #8 of 45 stocks.
To see additional POWR Ratings for Growth, Sentiment, Stability, and Momentum for BLMN, click here.
Arcos Dorados Holdings Inc. (ARCO)
ARCO is a franchisee of McDonald's restaurants. The company has the exclusive right to own, operate, and grant franchises of McDonald's restaurants in 20 countries and territories. ARCO is headquartered in Montevideo, Uruguay.
For the fourth quarter, ended, Dec. 31, 2021, ARCO’s total revenue increased 28.5% year-over-year to $780.29 million. Its operating income grew 258.1% from its year-ago value of $77.77 million, while the net income increased 106.8% from its prior period to $45.56 million. ARCO’s EPS rose 120% year-over-year to $0.22.
The consensus EPS estimate for its fiscal year 2022 represents a 48.9% improvement year-over-year to $0.33. Analysts expect its revenue to increase 26.2% year-over-year to $708.29 million for the first quarter, ending March 31, 2022. In addition, it has an impressive earnings surprise history; it surpassed the consensus EPS estimates in three of the trailing four quarters. The stock has gained 63.7% over the past year and 58.9% over the past six months.
ARCO's strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which equates to Strong Buy in our POWR Ratings system. The stock also has an A grade for Sentiment and a B grade for Growth and Value. Within the Restaurants industry, it is ranked #3.
In total, we rate ARCO on eight distinct levels. Beyond what we have stated above, we have also given ARCO grades for Momentum, Stability, and Quality. Get all the ARCO ratings here.
Ruth's Hospitality Group, Inc. (RUTH)
RUTH develops, operates, and franchises fine dining restaurants under the Ruth's Chris Steak House name. It offers food and beverage products to special occasion diners, frequent customers, and business clients. RUTH is headquartered in Winter Park, Fla.
In the fourth quarter, ended Dec.26, 2021, RUTH’s total revenue increased 63.8% year-over-year to $126.74 million. Its operating income grew 160.6% from its year-ago value to $12.34 million, while the net income increased 869.8% from its prior- year period to $13.80 million. The company's EPS rose 900% year-over-year to $0.40.
Analysts expect RUTH's revenue to increase 37% year-over-year to $119.58 million in its first fiscal quarter, ending March 31, 2022. The $0.31 consensus EPS estimate for the first quarter, ending March 31, 2022, represents a 19.2% improvement year-over-year. Furthermore, RUTH has an impressive earnings surprise history; it surpassed the consensus EPS estimates in each of the trailing four quarters. The company’s shares have surged 14.5% in price year-to-date and 14.7% over the past three months.
It is no surprise that RUTH has an overall B rating, which equates to Buy in our POWR Ratings system. RUTH has a B grade for Value, Sentiment, and Quality. In the Restaurants industry, it is ranked #4.
Click here to see the additional POWR Ratings for RUTH (Stability, Growth, and Momentum).
Biglari Holdings Inc. (BH)
BH primarily owns, operates, and franchises restaurants under the Steak n Shake and Western Sizzlin names through its subsidiaries in the United States. As of December 31, 2021, the San Antonio, Tex.-based concern operated 199 Steak n Shake company-operated restaurants, 159 franchise partner units, 178 traditional franchise units, 3 Western Sizzlin company-operated restaurants, and 38 franchised units.
For its fiscal year ending Dec. 31, 2021, BH’S revenue amounted to $366.11 million. Its net earnings were $35.48 million, versus a $37.90 net loss in the prior period. The company’s EPS amounted to $111.83 compared to a $110.05 loss per share in the previous year. And its cash and cash equivalent stood at $42.35 million over the period. The stock has gained 10.2% in price over the past year and 6.1% over the past month.
BH's strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our POWR Ratings system. The stock also has a B grade for Sentiment, Value, and Quality. Within the Restaurants industry, it is ranked #10.
In total, we rate BH on eight distinct levels. Beyond what we have stated above, we have also given BH grades for Momentum, Stability, and Growth. Get all the BH ratings here.
Potbelly Corporation (PBPB)
PBPB owns, operates, and franchises Potbelly sandwich shops. As of Dec. 26, 2021, it had 443 shops in 33 states and the District of Columbia, including 397 shops and 46 franchise-operated shops. The company is headquartered in Chicago, Illinois.
During the fourth quarter, ended Dec. 26, 2021, PBPB’s total revenue increased 37.3% year-over-year to $102.80 million. Its adjusted EBITDA amounted to $2.56 million, compared to a $6.87 loss in the prior period. Its cash and cash equivalent stood at $14.35 for its fiscal year ending Dec. 26, 2021.
Analysts expect PBPB’s revenue to increase 25.2% year-over-year to $97.70 million for the first quarter, ending March 31, 2022. In addition, it has an impressive earnings surprise history; it surpassed the consensus EPS estimates in three of the trailing four quarters. The stock has gained 15.1% in price year-to-date and 23.2% over the past three months.
It is no surprise that PBPB has an overall B rating, which equates to Buy in our POWR Ratings system. PBPB has a B grade for Momentum and Sentiment. In the Restaurants industry, it is ranked #24.
Click here to see the additional POWR Ratings for PBPB (Stability, Quality, Growth, and Value).
BLMN shares were trading at $22.36 per share on Wednesday morning, up $1.35 (+6.43%). Year-to-date, BLMN has gained 7.19%, versus a -2.91% rise in the benchmark S&P 500 index during the same period.
About the Author: Spandan Khandelwal
Spandan's is a financial journalist and investment analyst focused on the stock market. With her ability to interpret financial data, she aims to help investors evaluate the fundamentals of a company before investing.
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